Thursday, 28 February 2013

CSC Europe parts company with another top executive!CSC today issued the expected announcement that Claude Czechowski, Head of South and West Europe, “has decided to leave the company”.We are not surprised by the news. We had heard that Mr Czechowski and CSC’s Corporate management were increasingly in disagreement over the company’s direction.Now comes the hard part for CSC, finding an appropriate successor, with particular emphasis on CSC’s operations in France.Mr Czechowski developed relationships with many of France’s business leaders and has given CSC high visibility and a positive image in the country. Additionally, CSC seems to have avoided the financial problems which have beset many US multinationals’ French operations.Understanding the French business environment and culture is a pre-requisite for success there. Many foreign companies send in a “trusted” expatriate who does not understand the country, then wonder why operating performance has started deteriorating.We must hope CSC find that very rare animal, a top executive who can operate effectively within the framework of a large US Corporation and who can also be successful running a business in France.

Sunday, 17 February 2013

CSC has issued an unusual announcement regarding Claude Czechowski, Regional VP of South and West Europe, which includes France, Belgium, Italy and Spain.Here it is:

“Claude Czechowski is currently on sick leave and is not expected to return until February 25. Lem Lasher has been appointed as CSC’s Corporate Representative to help manage the business while Claude is out. Lem will be reporting to me in this capacity. We wish Claude a speedy recovery and will keep employees apprised of the situation as needed.

Tom Hogan”

It is unusual to issue a public announcement just to say that a senior executive will be off sick for one working week and that he is being temporarily replaced by an US based executive. Maybe Mr Czechowski really is sick. But coming so soon after Gerhard Fercho’s removal as Regional VP of Central Europe, it may signify a period of reflection or advance warning of another impending top level “disappearing” at either CSC’s or Czechowski’s instigation .

Result:1. Unhappy customers where accounts are pillaged for profits early in the contract lifecycle, leaving teams the difficult task of turnaround in the final year or 2 before contract renewal, with an already damaged relationship.

2. Disillusioned staff working in an organisation where career progress & development, reward & recognition are either non-existing or an insult to intelligent professionals. Is a £50 voucher really a valid reward to a professional on £40-£60k who has just worked a 6 month contract putting in hundreds of hours above her contracted hours?I've also heard of many staff willingly working roles of increased responsibility above their pay-grade, or extended hours, for months & years, with no promotion or proper recognition of their achievements. In fact, worse, I've heard that many have done so to abject criticism from middle & senior management. Consequently, staff morale has plummeted.

3. Continue replication of this same culture from the top down across the organisation. Culture spreads from the top & is encouraged by the behaviour of senior management & the associated pressure placed upon subordinates.

So.....What Mike Lawrie really needs to do is to change the short-termist culture that is now pervasive in CSC, before all of the good leadership staff that are capable of re-starting the engines come to their senses and leave. He needs to introduce means by which staff who are willing to take on challenges of all shapes and sizes are recognised and rewarded.

He then needs to simplify the organisation in terms of focus. Not necessarily by grouping together roles of a similar type, but by understanding what services customers really want from IT service providers and aligning service groups focussed on these, with control over more of their own resources, and far less use of global "leveraged" resources.

Leveraged resource models sound wonderful in principle. However, they remove the requirement for any proper day to day staff management, and staff become increasingly removed from the technology teams within which they are supposed to be working, moving from account to account with no real sense of belonging. This leads to a tendency of staff being treated as a "resource" and NOT as people.

Finally, India.When will CSC wake up and realise India's honeymoon is over? Other service industries came to this conclusion several years ago, with problems of language & culture coming together to reduce the customer service experience.

Many of the more progressive outsources are already using Filipino resources, where the accent is less pronounced, and the culture strongly Christian & much more Westernised than India. It's laughable that CSC manages to get into Gartner's Leaders Quadrant as it does. A little bit of strategic understanding & vision immediately highlights CSC as not a leader but a lagger.

To end, this comment, I'd like to say that in my experience, CSC's greatest asset is it's people & until more than lip service is paid by the excutive board to this fact, then the plane will continue it's downward spiral.

The article which focuses on CSC joining the ranks of low corporate tax payers has some interesting charts. Taking the charts as a starting point and analysing them further one can see that CSC’s cost cutting seems to have focused entirely on driving out wage (people) costs while other costs are left almost as is. See first chart.If this information is expressed in percentage terms, see second chart, it is more and more obvious that people costs have been radically reduced while non-wage costs remain high.

To us it is obvious that CSC by cutting people costs and not addressing non-wage costs, that are back where they were in 2004, has now reached the limit of diminishing returns. The question is why are non-wage costs so high? Is it because of internal pricing mechanisms needed to pay for the two corporate jets (yes we know that jets have finally been sold) and the costs of the elite in Falls Church HQ? Is it because capitalisation of costs at contract start up to avoid showing them as expense thus reducing margin is still on the books for some one else to take the hit on? Is it because the offshored labour is not as productive as home labour? Are non-wage costs ‘stuck’ and unchangeable?

Given that CSC in the UK had a share in the single largest IT project (NHS IT) in world throughout this period and a billion dollar earning Royal Mail contract the results are pretty bad, Whatever the reason CSC still has a long way to go to show it can run productive businesses.

Monday, 11 February 2013

Below are some further thoughts on the challenges facing CSC after its Q3 2013 results announcement. These are based on feedback we have received, some of which can be seen as comments by readers of the blog, plus our own reflections.It has to be said that in turning around CSC Mike Lawrie has a very difficult task ahead of him. Any major change program in a global corporation is bound to attract questions, concerns and criticism, and CSC is no exception. However.....Market needs and competitors CSC operates in an innovative and fast changing market with new competitors emerging at every turn. CSC has failed to keep pace with market changes for most of the past decade and failed to invest in new service offerings. The executive management seemed to be stuck in the old “Infrastructure and Apps IT outsourcing megadeal” mindset as the market moved on. They allowed a once-vibrant consulting practice to wither; they failed on many high-profile systems integration projects due to a failure to value project management skills; they failed to build on a leading position in software applications for the financial services industry by treating this sector as a cash cow. While CSC focused on the bottom line to the detriment of its services and skills emerging market suppliers like those in India, and new technologies like cloud computing, Apple iPad apps and Google services are showing real growth.Has CSC slipped behind and become another “me too” player? Many employees say so. The challenge to CSC is to find areas of genuine competitive advantage. Cost Take Out This is very much needed, as the cost structure, especially overhead and headquarters costs, had been allowed to get out of line with the reality of the revenue level. One challenge to CSC is to protect the costs needed to create the future. These include investing in employee skills, development of new services and products, and continuous updating of the infrastructures offered to clients. Instead we are hearing about yet more reductions in the capital base, of offerings being out-of-date and staff not being trained.
Another challenge to CSC is to reduce work and tasks in line with headcount and costs reductions. In the past, there was an attitude in CSC that workload could be increased and headcount reduced if the employees would just show enough 'commitment' and make more effort. We would also make the observation that forcing staff to bring forward or reschedule vacations to reduce a particular quarter’s costs gives a very poor message to the outside world, as well as creating bad feeling amongst hardworking employees. Headcount reductions This is closely related to cost take out programs. CSC needs to be open and honest with employees about this. We see conflicting messages along the lines of :
‘We need to build a sustainable company together. Anyone highly skilled and motivated should do well. But we are moving your job to India anyway so please ensure adequate knowledge transfer ’. It is a statement of the obvious that CSC needs to choose carefully which employees to retain and which to let go. But we hear that the decision criteria are unclear and that it is Boston Consulting Group which is making the decisions based on……. the relative cost of different employees.
CSC needs to treat employees who are being terminated with the respect and sensitivity they deserve. In addition there are many stories of managers ducking their responsibilities in terminating employees, preferring to have an HR administrator handle the difficult conversations or just sending a letter to the employee’s home. Our suggestion to Mr Lawrie is that any manager who does not have the courage to tell an employee directly they are being terminated should be put at the top of the termination list.
Headcount reductions, if not handled well, will have a significant negative impact on CSC, as well as destroying employee trust in the new management. Selling non-core businesses A necessary step, but what is “core”? Are regional accounts, as opposed to the Global 1000 accounts, core? The challenge is to get the whole business model and management system aligned in support of the strategy of “core”. In the past there seemed to be examples of “strategic” or “core” activities being starved of investment funding, while peripheral activities, businesses or accounts were allowed to mushroom and/or lose money. If selling off non-core stops this waste of investment funds, it will help.
Management renewal The employee comments are overwhelming in their view that a radical management renewal was needed. But have the incompetents been replaced by good guys, or just by a different set of incompetents? Only time will tell. It is hoped that CSC has reference checked the new senior executives very thoroughly as recent management failures suggest that CSC HR either has not been thorough in its reference checking or does not know how to do it effectively.
The challenge to CSC related to this renewal will be to create a single management culture. Textbooks are full of examples of large-scale management renewals which failed due to the absence of a positive management culture. A specific challenge for the new executives will be to figure out which “inherited” managers and employees contribute and perform well and which are just good talkers. And the new executives must avoid the trap of assuming that anyone who worked with the previous senior executives must be by definition “not up to standard”. Renew the Culture There is no evidence we can see (although we are willing to be corrected) of a renewed culture being built. A culture where homophobia and bullying are no longer tolerated, where open and frank discussion is welcomed provided it is professional and objective and where turf wars are stopped. A challenge for CSC is to stop the slavish attention to minute details by out of touch senior executives who act as if employees cannot be trusted. This needs to be replaced by confidence that middle management and employees will try do the right thing; also by a process of monitoring and review which has objectives to develop and support business improvement, not to figuratively kick people around and engage in public humiliation of staff. ConclusionYears of bad management, turf wars, under/bad investment, and a top down bully boy culture has left CSC behind without credible service offerings or an ability to deliver on the large scale complex projects that it was originally founded to do. As examples there is in the UK the NHS IT program, the single biggest program of its kind in the world, that has failed to deliver on time and with the functions the customer thought they were buying. In the USA there are several large projects for the Government, the single largest spender on IT in the world that have gone wrong. Can CSC really afford to upset such large customer?The key question: Is the restructuring of CSC going to address these issues?

In conclusion we would submit that tough though it is, slashing and burning is relatively easy. It is the need to plough, sow, and nurture through all weathers that are the real challenges. Or in consultant speak; invest, re-new, re-skill, earn back trust. It is hoped that Mr Lawrie and team can do this. ......................................................................................... Some employees have made comments in various parts of this blog that the reader may have missed. We extract below a sample of these comments represent a cross section of the opinions: Quite interesting to follow CSC employees' and applicants' judgement on their company in various countries. Germany: http://www.kununu.com/de/all/de/it/csc US: http://www.glassdoor.com/Reviews/CSC-Company-Reviews-E169_P4.htm Seems esp. German (EMEA) employees are steadily loosing confident in CSC (incl. new Mgmt.), while the US and Overseas employees seem to be little more optimistic. Nonetheless, compared to competitors, especially in the german market (links below on kununu, a XING related site), CSC is way, way, way behind ... and customers and all do know and see the trouble. on CSC Results Q3 FY2013 - Our Analysis Australia has a 'company shutdown' period for the last week of March and all employees not on billable work have been ordered to take leave. Even those with April leave with for the kids school holidays have had to bring it forward, and miss out on family time. on Two more CSC senior executives disappear. This is true in india too.. Senior executives are getting bonuses and Developers are getting pissed of. People are Coming in office reading news paper and going home. Daily Routine of our senior executive Come office check mail . coffee Play TT Lunch TT Tea Mail and Go back with Good bonus.. on Two more CSC senior executives disappear
[QUOTE] In a recent mail in the UK, Liz Benison told staff to take 5 days leave in Q1 to cut costs. Is this even legal? She needs to be the next for the chop! [QUOTE] In Germany we were also requested to take 5 days in Q1 to avoid vacation accruals. But we are free in vacation. planning. It cannot be dictaded by the employer!!! Like when CSC UK announced lay-off plan before having worked on it. Result, skilled staff resigned first. on How long will the CSC plane stay in the air? More redundancies announced, 170 in the UK, more in Denmark and Sweden. Office closures in the UK and staff forced, with threats of disciplinary action if they don't, to take vacation ahead of year end to help massage the figures. Things are clearly not as rosy as the execs portray, especially if turning off the heating in the EMEA HQ to reduce costs is part of the turnaround master plan. What next, power savings at data centres jeopardizing customer facing services? on CSC - 2012 The Year In Review
Well Australian staff are being replaced.. sorry being made redundant at a high rate, with jobs being restructured to India. Cases of staff who received pay rises for outstanding service previously in the year, being 'pruned' as they were too expensive.. Moral in CSC Australia is shot to pieces, many people are making for the door or waiting for the next swing of Mike "the Scythe" Lawrie, hoping for some payout.. but hey so long as those poor hard done by shareholders are kept placated then CSC is fine... on CSC - 2012 The Year In Review You are not on your own in Australia ... I too had excellent performance feedback from my clients ... but it is water off a ducks back to CSC ... CSC do not even read employee appraisals! Career development is a laughable fantasy in CSC ... they do not even train people ... their purpose in life is to make money; fair enough they have that in common with most companies - but CSC are different in that they despise their employees as a necessary evil and dispose of them at the earliest possible opportunity. I cannot understand for the life of me why part of the company name is "Sciences"; they have absolutely no interest in computing science, only in profit by whatever means. They have destroyed my interest in business computing when it was vibrant before their arrival. And they do nothing for their clients either ... their method is to derive as much money as possible for delivering as little as possible - exactly the opposite of the clients expectations! Clients beware ... CSC on CSC Results - Is it the beginning of a real turn-round or window dressing for a sale?

Wednesday, 6 February 2013

CSC shares jump 10% to US$46 after its Q3 FY2013 earnings release, but where is CSC going?

The Q3FY2013 profit performance exceeded analyst expectations, and the company once more upped its FY2013 EPS earnings guidance.

Just like they did in the previous quarter, CEO Mike Lawrie and CFO Paul Saleh gave polished performances at the Analyst conference presentation, and the Q&A session. Analyst questions were handled confidently.

Here are the highlights of what impressed the market:

Reported revenue for the quarter in constant currency was up 2.8% compared to Q3 FY2012.

Earnings per Share (EPS) for the quarter were US$ 0.77c, compared with analyst expectations of between US$0.58c and US$0.62.

The company bought back 1.97 million of its shares at an average price of just over US$39 per share. This drives up EPS but does not mean the company is performing any better.

EPS guidance for FY2013 has been increased by US$0.20 to a range of US$2.50 to US$2.70. The previous analyst consensus was US$2.37.

CEO Mike Lawrie said the company was ahead of plan on key actions such as its Cost Take-Out program.

The headlines look good, the shares jumped and the Analyst conference went well. So why do we remain skeptical about the sustainability of CSC’s progress?

Looking a little bit beyond the headlines and behind the numbers and correlating to other information in the public domain one can see that:

The new business bookings for the quarter at US$3billion were the lowest level for 7 quarters, indicating continual decline. The new business bookings for the 9 months to date of FY2013 were only US$11.2billion. This correlates with comments we have received about poor sales focus and performance in CSC, due to employees’ uncertainty about their futures and concerns with internal matters such as widely misunderstood new operating models and future organization charts. As a point of comparison, new business bookings for the first 9 months of FY2012, in the Laphen era, were 16% higher than the first 9 months of FY2013.

The reported year-on-year revenue growth of 2.8% is potentially misleading. The Q3 FY2012 (ie last year) revenue number was net of a one-time write-off of US$204million. Adjusting for that write-off, Q3 FY2013 revenue was in fact lower than the same period of FY2012.

There were exceptional cash inflows of US$1 billion relating to the disposal of CSC business segments, including Credit Services. CSC has said that some US$600–800 million of this will be used 50/50 for share buybacks and pension fund contributions. This may seem an unusual choice of investment for business growth. But it makes a lot of sense as an investment in support of a sale of CSC and/or large-scale employee lay-offs.

Capital expenditure continues to drop, totaling only US$156million for the quarter. Thus continuing with the trends set by the previous management. Have customer technology refresh investment programs been put on hold once more? Could this be because the investment payback period is longer than the recovery timescale CEO Mike Lawrie is working to?

The latest US$0.20 increase in FY2013 EPS guidance needs clarification. CSC has let the US$0.17 Q3 “over-performance” flow through to the full year. It has also released only US$0.03 of the US$0.16 EPS “contingency” it took in Q2. (CSC effectively reduced its EPS guidance for Q3 and Q4 by US$0.16 at that time. For details, see our blog entry of 12 November 2012 re CSC Q2 FY2012 earnings release). This suggests CSC still has a contingency of US$0.13 available for Q4 FY2013.

The Q&A session details brought out a few interesting points:

Europe is seen as creating “uneasiness”, notably in Germany, but also in France and UK. CSC will continue to restructure some Europe businesses. This correlates with reader comments about CSC plans to force UK and German employees to take 5 days vacation in Q1 FY2014, apparently to reduce costs when in fact costs are being deferred to the rest of FY2014 with this method. It also suggests CSC’s problems there may be more than just “uneasiness” in the work force.

CSC sees its growth opportunities as being in Latin America, Asia and United States. (One must deduce from this statement that only Europe will be non-growth, with the consequences anyone can guess).

UK NHS will represent lower revenue and profit than CSC had anticipated. (Why is this not a surprise to us? Why is the NHS failure still not fully accounted for?)

Mike Lawrie sees CSC moving away from what he calls a “holding company mentality” with its resulting overlap, duplication and too much staff function focus. (In our opinion, this has been a major cause of CSC Europe’s woes for the past decade).

Shareholders must be pretty happy with Mike Lawrie’s performance on their behalf. Exactly 12 months ago, CSC shares were below S$27 and the outlook was getting worse. Today the shares are 70% higher and most of the non-performing top management have gone. What shareholder would not have signed up for that outcome 12 months ago?

From an employee perspective things have not developed anywhere near as happily during Mike Lawrie’s tenure, with job losses, salary reductions, off-shoring to India etc. Nor does the future look brighter. There is declining morale, too much uncertainty and great confusion compounding a growing lack of trust of Mike Lawrie’s real objectives. There is anger that while former CEO Mike Laphen and his senior management left with large payoffs, the hardworking and performing employees who are losing their jobs due to senior management incompetence are getting legal minimum termination payoffs.

So where does this leave us?

It leaves us with the impression that Mike Lawrie’s actions will achieve a peak of profitability performance in about 12 months from now, which may be sustainable for a couple of quarters. Thereafter we may see a second decline in CSC’s performance. Not as dramatic as the collapse of calendar year 2011, which saw 50% wiped off the share price, but enough to reduce the attraction of CSC.

It leaves us thinking that Mike Lawrie’s plan could well be to sell off CSC in the next 18 months, aiming for an acquisition share price towards US$60. This would be more good news for shareholders, but to achieve it CSC will need to develop an effective retention strategy for its top employees. Without them Mike Lawrie’s plans will not succeed. And right now they are not happy and many are leaving - see recent posts.

Friday, 1 February 2013

Two more senior CSC Europe executives are standing down. Both were Presidents and members of the CSC European Management Board when CSC had Presidents and a European Management Board.

Gerhard Fercho, Head of Europe’s Central Region, which covers Germany, Switzerland, Austria, and Eastern Europe, has been removed from his position and “asked to assume a new role”, to quote the CSC announcement. The new role is unspecified, of course. We will be surprised if Fercho assumes a real role in CSC again.

We do not see Mr Fercho’s removal as being detrimental to CSC. He was viewed by many colleagues as being difficult to work.

Regular readers of this blog will recall that Mr Fercho was found guilty of false testimony by a German court in 2011. We were surprised CSC did not ask him to stand down at that time.

Another CSC senior executive on his way out is Steve Mitchener, Head of Financial Services EMEA for the past 10 years. We understand he resigned of his own volition due to unhappiness with the current direction at CSC. Unlike Fercho, we believe Mitchener’s departure could be a loss for CSC. He has a reputation in the industry as an effective software sales executive, whose team’s licence sales regularly bolstered CSC Europe’s flagging profits.

With these changes, most of the senior CSC executives in Europe have changed in the past 12 months or so. Who will be next?